'Liquid'-ity Crisis That Will Sink US Forecasts

The Dow Jones Industrial Average closed higher once again Tuesday. It is determined to sail past the 17,000 mark without a care in the world. This is in addition to the Dow rising 6 percent for the first half of the year, and that is in addition to the 16-year best record that the Dow posted in 2013 of 26 percent.

Between Jan. 1, 2013, and yesterday, the Dow is up approximately 28 percent. If that were the metric that signified the world was all right and that the United States was experiencing the much-awaited resurgence that has been promised each year, we would not have a care in the world.

Sadly this story is flawed. It is full of deceit and lies. It is full of twisted and manipulated data and the hope that all will be well.

Reminds me of an old joke; A man jumped of the Empire State building. As he passed the 82nd floor on his way down, he looked around and said, "So far so good."

The much-touted recovery of the U.S. economy has so far not yet materialized. This time we have found Mother Nature to blame for the horrendous 2.9 percent GDP contraction that we recorded for the first quarter of 2014. Yes, go ahead and blame the weather instead of acknowledging that fundamentally we are very weak and on the brink of collapse.

There is a lurking, but very real, threat that will swallow not just the U.S. economic growth story, but will toss the world into a real depression and possible start another war, which the United States can ill afford.

We have all heard of the overbuilding of housing in China. By some estimates there may be as many as 49 million empty apartments in China. Even for China, that is a massive overbuild. Already, housing prices in Shanghai and Beijing have declined by 10 percent this year.

But the real story not being spoken about is water.

First, China does not have enough food to feed its population. It needs agricultural land the size of California each year just to stay even with providing food to its people. While it can gradually increase its irrigable land over time, the challenge is water. It just does not have enough.

Qian Keming, chief economist of China's Agriculture Ministry, summed it up by telling the audience at the 3rd China International Agri-Business Forum:

"Fresh water resources are only 2,100 cubic meters per capita, which is only 28 percent of the world's average level. The shortage of water for agricultural irrigation each year is about 30 billion cubic meters. China imported about 148.6 billion cubic meters of water in 2013, which was equivalent to 38 percent of China's agricultural water."

Simon Black, founder of the Sovereign Man website, put that number in perspective: "China water imports of 148.6 billion cubic meters last year handily exceeded the 569 MILLION (0.569 billion) cubic meters of oil that the United States imported."

He added, "Water is THE critical resource in agriculture. Without it, you're not producing. This makes China's deficiency a long-term headwind to their food production dilemma."

This story is not unique just to China. I see the same challenge in most of Asia, India and much of the African continent as well.

Back in 2005, I had invested in an exchange-traded fund (ETF) that was dedicated to water. PHO is the PowerShares Water Resources ETF that invests in water companies. So far it has been a great run, with a 93 percent return for me in the past nine years. I suspect as we continue to see water shortages, this amazing return will be dwarfed by what will come.

The side effect of the water shortage will be the decimation of the U.S. forecasts of growth, as we not only depend on agriculture for our growth, but also depend on trading partners like China and India to continue to grow.

There is a lurking, but very real, threat that will swallow not just the U.S. economic growth story, but will toss the world into a real depression and possible start another war, which the United States can ill afford.